Investors See Profit in 'Hermit' North Korea

ONJUNG-RI, North Korea -- The display cases are in place and the tourists are here, their wallets filled with U.S. dollars. Only the perfumes, whiskey and cigarettes are lacking to open the first duty-free shops in North Korea.

One hurdle remains to foreign investment. "If we sell $1 million a month, how do we get the money out," Thakor Sharma said from Singapore when asked about the delay in opening his nine duty-free shops. Expecting to resolve the money-transfer issue this spring, he said he urges his North Korean negotiators to keep politics to one side, lecturing them that "money talks."

A new language of foreign investment, trade and tourism is filtering into North Korea, long written off as a granite-hard bastion of communism. Over the last 18 months, this "hermit nation" has gone online with an e-mail service and signed its first onshore oil concession with a foreign company. In the months before North Korea became a charter member of U.S. President George W. Bush's "axis of evil," this long-reclusive nation established diplomatic ties to 14 Western nations. Although Americans are free to travel to North Korea, Bush has taken a hard line, arguing that the nation's missile exports and biological warfare capabilities are a threat to the United States. On Tuesday, Bush arrived in Seoul for a two-day visit to South Korea.

Last Friday, Bush said that if North Korea stopped exporting missiles, "we would welcome trade." In an interview with Seoul's Joongang Ilbo newspaper, he added: "We would help welcome North Korea into the family of nations, and all the benefits, which would be trade and commerce and exchanges."

This year, North Korea will get limited cellphone and Internet service and host an arts festival and three trade fairs. It will also see a modern hotel, partly foreign-owned, open in Pyongyang, the capital -- all to attract foreigners.

"They are after tourism," said Nick Bonner, whose company, Koryo Tours, is offering package tours from Beijing for $1,590.

"North Korea has no choice," said Bradley Babson, a Washington economist who has studied North Korea for the World Bank. Referring to the end of communist ideology in China and Russia, he explained: "The neighborhood has become market-oriented."

With China's booming economy exerting a growing influence, direct flights are to start next month linking Pyongyang with Dalian and Shenyang, two commercial centers an hour away by jet.

At the prodding of Russia, North Korea's largest creditor, plans are advancing for two big projects: a $250 million upgrade of the main rail line to allow goods to be shipped from Seoul to Europe and a natural gas pipeline to link Siberian gas fields with South Korea.

North Korea may hold the key, but South Korea is the prize. South Korea has about 48 million people -- more than twice as many as North Korea -- and its economy, the 13th largest in the world, is 25 times as big. South Korean auto workers produce as many vehicles in two eight-hour shifts as North Korea turns out in a year.

But investment is trickling in. This spring, work is to start on a 6024-square-kilometer oil exploration and production concession in North Korea, won last fall by Sovereign Ventures of Singapore. In July, cellphone service is to start under a joint venture between Loxley Pacific of Thailand and North Korea's telecommunications ministry.

"I saw some Americans of Korean origin looking at oil and gas prospects," said Glyn Ford, a British member of the European Parliament who was in Pyongyang last summer for the opening of the British Embassy. Given North Korea's power shortages and rundown ports, he said: "At the moment, very cheap labor is the only thing the North Koreans have going for them."

With more delegations traveling to Pyongyang, the number of foreign companies at this May's trade fair is expected to be triple last year's level. Two new fairs will be held this year.

"Businesspeople are feeling more comfortable now that the diplomatic platform is in place," said Roger Barrett, managing director of Foreign Business Development Associates, a Beijing company that took seven groups to North Korea last year. Barrett, a Briton who plans to open an office in the North Korean capital in April, said: "When you go around the office buildings in Pyongyang, you would be surprised by the number of European and Asian companies. There are about 20 or 30."

However, the pitfalls of being a pioneer can be seen in the enclave of Onjung-Ri 200 kilometers to the southeast.

From the docks of a nearby seaport, 6 kilometers of freshly laid railroad tracks lead to a modern mineral water bottling plant. Its clean lines, robin's-egg-blue walls and red trim stand out amid the drab decay of the countryside. In 2000, the Taechang Co. of South Korea spent $12 million to build the plant and the railway.

But after a successful year, North Korea changed the rules, demanding a 30-fold jump in its cut of the cash flow.

"We couldn't make both ends meet," said Kong Soon Hyoung, the assistant manager, so the plant has suspended operations.